The Perfect Store: Inside Ebay

The intellectual forebear of disintermediation was Joseph Schumpeter, the Austrian economist who argued that capitalism is inherently a force for “creative destruction” of existing institutions and distribution patterns.

EBay's success, as Omidyar liked to point out, was due in large part to the fact that sellers went where all the buyers were, and buyers went where all the sellers were. But if aggregators like Bidder's Edge caught on, buyers would no longer go to eBay—they would go to an aggregator. Sellers could put their items up for sale on any site, including

But with eBay, registered users had a significant investment in remaining on the site. They had reputations, in the form of Feedback Forum ratings reflecting months, even years, of online activity. If they switched to Onsale Exchange or Auction Universe, they would have to leave those ratings behind.

Storefronts would allow sellers almost as much autonomy as they had on their own websites. But by tapping into eBay's millions of registered users, they could solve the problem that had doomed so many small e-commerce sites—finding customers.

The first markets arose at crossroads, where traders came to reach the largest number of potential customers. If sales at the crossroads were good, the merchants stored their wares there permanently. If they were the best in the whole region, traders brought their families and settled there. In time, they put up walls and built an infrastructure, a

With millions of buyers and sellers able to participate in every transaction, market flaws that allowed goods to sell for more or less than they should have were being corrected. EBay was now a price-setting mechanism—a stock market for everyday goods.

“Brands are quick-drying cement,” she liked to say. Amazon had hardened in the public's mind as a fixed-price book, music, and video destination—not a place to go for auctions.

But auctions excel when they are called on to set prices for items whose value is inherently indeterminate. Some of history's first recorded auctions were held at the gates of Rome by soldiers selling off war plunder—used, foreign, and one-of-a-kind goods whose worth was subject to debate. In modern times, land-based auctions have been used mainly

“The financial empowerment you can bring people by giving them access to an efficient market is tremendous,” Omidyar says. “That's what it was all about.”